Banking

Will "Bitches" and "Turds" Decide the Fate of Wisconsin?

Mary Bottari — Wed, 23 Mar 2011 11:56:42 -0400

The reign of lawlessness continues in Wisconsin.

Last week, a local court issued a temporary restraining order blocking the implementation of Governor Scott Walker's radical proposal to do away with most collective bargaining rights for public workers and cripple labor's ability to collect union dues. The court put a halt to the publication of the bill (an act performed by the Secretary of State), so there could be a hearing on whether or not the Wisconsin Senate violated the state's strong open meetings law in its rush to ram the bill through.

This week, Wisconsin Attorney General JB Van Hollen charged into court in defense of secret government. He argued that when legislators break the law -- the courts can't do anything about it. Apparently legislators, like Senate Majority Leader Scott Fitzgerald, have "immunity" from the enforcement of their very own laws.

Welcome to Fitzwalkerstan, where novel interpretations of long established law are a daily occurrence and the billable hours are stacking up.

Pleadings from Fitzwalkerstan

Wisconsin's open meetings law requires 24 hours' public notice of meetings or two hours in emergencies. The amended collective bargaining bill was given less than two hours. As word spread via Facebook and Twitter that legislators were pulling a fast one, hundreds of citizen's showed up at the Capitol but could not get in to watch proceedings. Shut out, they were forced to chant "shame, shame, shame," under Senate windows.

Yesterday, the Wisconsin Attorney General filed a motion on behalf of the Secretary of State Doug La Follette to void the stay. Bizarrely, the client was never consulted. Indeed, the Secretary of State had delayed publication of the law because of his own concerns regarding the legality of the Senate's unprecedented action.

This is just the latest legal madness from Fitzwalkerstan. To ram the astonishingly unpopular proposal though the Walker and his chief henchman Fitzgerald had to finagle:

A five second roll call vote at 1:30 a.m. The move was so abrupt, over 20 legislators never had a chance to vote in the Assembly.
An unprecedented warrant for the arrest of 14 missing Democratic Senators and the deputization of a posse to round them up.
A gubernatorial budget address in a locked down Capitol in violation of a standing court order on Capitol access.
An unprecedented conference committee, formed by fiat, meeting in violation of the open meetings law in a tiny backroom.
A Senate roll call vote on a substitute amendment no one had ever seen.
A new Senate rule denying Democrats the right to vote in committee (an insane idea quietly withdrawn.)
The ongoing violation of the court order to restore Capitol access to as it was in January of 2011.

These astounding events have many Wisconsinites shaking their heads. "Procedures and open government are important in Wisconsin and I can't remember another time when these procedures have been this disrespected, " says UW law professor Bill Whitford, a life-long resident of Madison.

The courts have ruled against Walker twice so far. Thank heavens for the courts! A breath of sanity in an insane world! Or are they?

"Bitches" and "Turds," Oh My!

The reputation of Wisconsin Supreme Court took a pounding this week after the Milwaukee Journal Sentinel released emails showing that bickering on the Court had reached a new low. David Prosser, a sitting justice, acknowledged calling the state's first female Supreme Court Justice "a total bitch" and threatening to "destroy" her. But he nobly defended his actions telling the paper he had been "goaded" into making such statements by the respected Chief Justice.

David Prosser, whose campaign earlier announced he would "compliment" the new Governor, is seeking reelection April 5 and is up against a respected Deputy Attorney General JoAnne Kloppenburg. At the first debate between the candidates on Tuesday, Prosser again went deep into uncharted territory initiating the topic of "turds." Prosser quoted a comment on his opponents Facebook page: "Stop the turd, vote Kloppenburg." "Now, am I the turd?" Prosser asked. "That's totally inappropriate."

What other terrible rhymes lurk in the random comments of 8,700 Kloppenburg Facebook fans?

What Next?

The case filed by Wisconsin Attorney General Van Holland is in appellate court right now but may end up in the Wisconsin Supreme Court next week where the polarized court may be forced to duke it out to the utter horror of average Wisconsinites who think the state is quickly spiraling out of control. Walkers poll numbers are tanking, showing that he would lose a "do-over" by seven points. But that do-over may not come for a year. In the meantime, Wisconsin will be awash with Senate recalls, big money ads and dirty tricks the likes of which this state, which prides itself on good government and clean politics, has never seen. An independent and adult judicial branch will be more critical than ever.

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The Madison-based Center for Media and Democracy has been reporting the events from the Wisconsin Capitol, focusing on the politicians, corporations and spinmeisters behind the assault on working families. Visit us at PRWatch.org.

Breaking Up The Banks: I Did It!

Eric Lotke — Tue, 22 Mar 2011 08:14:29 -0400

As the debate heats up over Elizabeth Warren to head the Consumer Financial Protection Bureau, I took a step out on my own. I got a divorce. I am no longer a wholly owned subsidiary of Wells Fargo Bank.

First Wells Fargo acquired the bank I’d been banking in. Then Wells Fargo acquired my mortgage. The roof over my head and the little savings accounts where my kids manage their newspaper money were just parts of Wells Fargo’s diversified portfolio. So we left.

I opened a new account at a community bank near me. It has exactly the same tools for online banking, check cards and so forth that I’ve come to expect, and better interest rates on every product from checking to CDs to my kids' little savings accounts. I’m even better off with ATMs. I feared I’d be limited, but my community bank solves the problem by picking up the fees for me to use any ATM at any bank anywhere in the world.

The staff was friendlier, too. Many of them previously worked for banks like Citi and Wells Fargo, and they appreciated the cultural change even more than I did. They stayed open a little late to accommodate my work schedule, and we finished up by telephone and email.

I learned a bunch in the process, too. I learned that the Huffington Post was way ahead of me. They recommended that people make this move last year, and they even created a site to help find your local bank and tell your story.

Last year my bank was one of the four that held half of the nation's mortgages, two-thirds of its credit cards and controlled about 40 percent of the nation's deposits. My bank was one of the six that had assets valued at 64 percent of America’s GDP. That’s too big. I took no pride in it, and got nothing out of it. As Senator Bernie Sanders (I-Vt.) says, a bank that’s too big to fail is "too big to exist". We need to control these banks and restore the New Deal Glass-Steagall reforms that created a division between investment brokers and traditional banks. We also need Elizabeth Warren at the CFPB.

I can’t do much about any of that – but I still control my own money. Wells Fargo no longer does. One small blow against Big Brother Inc.

What Does Wikileaks have on Bank of America?

Mary Bottari — Thu, 13 Jan 2011 21:55:22 -0500

WikiLeaks founder Julian Assange is promising to unleash a cache of secret documents from the hard drive of a U.S. megabank executive. In 2009, he told Computer World that the bank was Bank of America (BofA). In 2010, he told Forbes that the information was significant enough to "take down a bank or two," but that he needed time to lay out the information in a more user-friendly format.

Recent new reports suggest that BofA is now moving into high gear on damage control, creating a "war room" and buying up hundreds of derogatory Internet domain names including BankofAmericaSucks.com and BrianMoynihanblows.com (BofA's CEO).

Before the big banks start calling for Assange's internment at Guantanamo, the question worth considering is what does Wikileaks have on America's largest bank?

Legal Liability for Toxic Mortgages

BofA is already under the gun, defending itself from multiple lawsuits from private investors as well as Fannie and Freddie demanding that the bank buy back billions worth of toxic mortgages-backed securities. The firm stopped issuing subprime mortgages in 2001, but it kept underwriting subprime mortgage-backed securities for many years. In September 2009, for example, BofA underwrote $239 million worth of securities backed by subprime loans. BofA has reserved $4.4 billion for these "put back" lawsuits. If Assange has emails showing that top executives at BofA knew they were peddling toxic dreck to investors, it would rock the firm and give tremendous ammunition to the army of lawyers already knocking on BofA's door.

Reckless and Illegal Foreclosures

BofA is at the heart of the robo-signing scandal and has wrongfully foreclosed on countless American families. One poor woman returned to a vacation home to find it locked, all her possessions gone -- including the ashes of her late husband. How could such a mistake be made? A BofA employee deposed in February 2010 said that she signed as many as 8,000 foreclosure documents a month without reviewing them, in violation of the law. Mounting questions about the fraudulent and illegal foreclosure practices at the big banks and mortgage service companies prompted BofA to temporarily halt foreclosures nationwide in October 2010. If Wikileaks can document that top BofA officials have a callous disregard for legal processes and constitutionally protected property rights, BofA's mounting legal liability may not be sustainable.

Countrywide Headaches

In 2008, BofA acquired Countrywide, one of the most aggressive and fraudulent lenders during the housing bubble. The result has been a trainwreck of liability and lawsuits for the megabank that now has over 1.3 million customers in foreclosure. To settle the lawsuits with Illinois, California and eight other states over predatory lending, BofA came up with an $8.4 billion loan relief plan for those holding Countrywide mortgages. In June, 2010 BofA paid $108 million to settle a Federal Trade Commission case that charged Countrywide with having extracted excessive fees out of borrowers facing foreclosure. BofA paid $600 million in August 2010 to settle shareholder claims that Countrywide had concealed the riskiness of its lending standards. There is no end in sight for these suits. In June 2010 the State of Illinois sued Countrywide again, this time over racial discrimination in its lending practices. Wikileaks could have further documentation of Countrywide's illegal and reckless underwriting practices or ongoing fraud at BofA.

Taxpayer Paid Bonuses

BofA acquired the brokerage firm Merrill Lynch for $50 billion in January 2009. The U.S. government blessed the merger with a $20 billion bailout loan to aid BofA. After the acquisition went through, it was revealed that Merrill Lynch had lost $15.8 billion in the last quarter of 2008 and that $3.6 billion in bonuses were paid ahead of schedule to top executives at Merrill. Among beneficiaries of the bonus bonanza was Merrill's CEO John Thain, who famously spent a million redecorating his office at the height of the crisis. About the deal New York Attorney General Andrew Cuomo said: "One disturbing question that must be answered is whether Merrill Lynch and Bank of America timed the bonuses in such a way as to force taxpayers to pay for them through the deal funding." If Wikileaks has emails showing top executives knowingly used bailout bucks for bonuses, this ugly chapter in history could be reopened, prompting Congressional investigations and further bailout backlash.

Still Too Big To Fail

In addition to the $25 billion in TARP bailout money and the $20 billion for purchasing Merrill, America recently learned of the extraordinary actions taken by the Federal Reserve to prop up BofA at the height of the crisis, details that were kept secret from the public. When the Fed was forced to release data about its emergency loan programs in December 2010, we found that BofA tapped an estimated $931 billion from the Fed in short term loans and government subsidies. If Wikileaks has information showing that America's biggest bank is only being kept alive by accounting tricks and ongoing government subsidies, the result could be another government bailout. Or is it possible we might see the first orderly dissolution of a of a "too big to fail" under the new Wall Street reform law?

"We Don't Suck"

BofA doesn't just want you to know that their CEO Brian Moynihan doesn't suck, they want you to know that their top staff does not suck either. The bank has started buying damaging domain names for a long list of executives, prompting many to wonder: just what have those executives been up to over there at BofA?

Hopefully Wikileaks and Julian Assange will soon let us know.

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Learn more about America's biggest bank in Sourcewatch.

Wall Street Whiners Threaten to Wreck the Economy-- Again

Zach Carter — Sun, 26 Sep 2010 18:10:38 -0400

I agree with everything Paul Krugman has to say about Max Abelson's excellent run-down of the Wall Street whinery, but his critique stops a little too short. Abelson's piece emphasizes that Wall Street isn't really upset about any policies the Obama administration has adopted, since, as I and many others have noted, the Obama administration has been very friendly on that front. What they're upset about-- at least what they say they're upset about-- is the jargon. Obama called bailed-out bankers "fat cats" after they paid themselves obscene bonuses with taxpayer money. To the bankers Abelson quotes, this amounts to some kind of unfair discrimination. That's absurd-- the bailout barons Obama criticized had wrecked the economy and then paid themselves like princes for profits secured by taxpayer largesse. Those who did not benefit from such largesse have no reason to feel slighted by the critique, and those who did benefit have no reason to be complaining from their second homes in the Hamptons.

But what I find most interesting is that the cry-babies in Ableson's story actually threaten to wreck the economy over this rhetoric. The key passage is at the end of Ableson's piece:

Wall Street's emotions have consequences. "If, as a result of this anger, credit becomes unavailable, particularly for small and mid-size businesses," Mr. Schwarzman wrote in The Washington Post this year, before his Poland blunder, "then at best the economy will slow and, at worst, we will find ourselves in a dire situation." He said bankers felt under siege and were responding by "becoming conservative," a lovely little pun about lending and politics.

Credit does not just magically become "unavailable" because of "anger." Some class of angry people has to decide not to make credit available.

There are plenty of reasons why bankers might decide not to extend loans, but feeling "under siege" because the president called you a fat cat of isn't one of them. No sane businessperson would let those feelings overwhelm her decision-making process when the bottom line is at stake. If there were evidence that regulations were going to change dramatically and banks would have to keep more capital on hand to cushion against losses, there's a case to be made that banks might not be eager to extend loans as a result (not a very good case, though, since banks could just raise capital in the markets to support profitable lending opportunities). But freaking out because the President calls you a fat cat and preemptively shutting down your business makes, well, no sense.

Another of Abelson's anonymous Wall Street sources repeats the insanity:

"He's pissing on us and Wall Street and bankers and capitalism; then we have gotten afraid," the executive who turned CNBC on mute said. "We then are not investing in maybe what we should invest in."

What, exactly, are this guy and his friends afraid of? That Obama might call him another name that he likes even less than "fat cat?" Obama has proposed a couple of tax changes for some types of Wall Street revenue and some types of hedge fund pay-- but the fear of higher taxes wouldn't be grounds to invest less, or invest improperly. Bumping up the capital gains rate from 15 percent to 20 percent doesn't alter the incentive structure at all-- it isn't going to push any bankers or traders out of the investment business.

So these brats are saying one of two things with their tantrums. Either Wall Street is dominated by completely irrational fools who will wreck their businesses after hearing a dirty words, or this is a threat: Treat us like superhuman royalty, or we'll wreck the economy. If the first case is true, then these guys are paying themselves enormous sums of money to be total idiots-- something the "well operators" that one of Abelson's anonymous Wall Street sources spits on never do. If the second is true, then we have another excellent reason to keep these sharks out of economic policy debates.

UPDATE: Also note the use of anonymous sources in Abelson's story. Usually that anonymity protects somebody from something-- in financial journalism, anonymity usually protects a source who divulges a trading strategy or a lobbying tactic that ought to be a company secret. But these guys are just whining, and asking for Abelson not to tell anybody who they are. At least some members of the Wall Street whinery are ashamed of themselves.

The Growing Movement for Publicly Owned Banks

Ellen Brown — Fri, 19 Mar 2010 16:00:11 -0400

“Hundreds of job-creating projects are still on hold because Michigan businesses and entrepreneurs cannot get bank financing. We can break the credit crunch and beat Wall Street at their own game by keeping our money right here in Michigan and investing it to retool our economy and create jobs.”

—Lansing Mayor Virg Bernero in The Detroit News March 9, 2010

Michigan, which has an unemployment rate of 14 percent, has been particularly hard hit by the economic downturn. Virg Bernero, mayor of Lansing, the state’s capital, and a leading Democratic candidate for governor, proposes to relieve the state’s economic ills by opening a state-owned bank. He says the bank could protect consumers by making low-interest loans to those most in need, including students and small businesses; it could also help community banks by buying mortgages off their books and working with them to fund development projects.

Bernero joins a growing list of candidates proposing this sensible solution to their states’ fiscal ills. Local economies have collapsed because of the Wall Street credit freeze. To reinvigorate local business, Main Street needs a heavy infusion of credit, and publicly-owned banks could fill that need.

In a recent article for YES! Magazine, I tracked candidates in five states running on a state bank platform and one state (Massachusetts) with a bill pending. Just one month later, there are now three more bills on the rolls—in Washington State, Illinois and Michigan—and two more candidates joining the list of proponents (joining Bernero is Gaelan Brown of Vermont). That brings the total to seven candidates in as many states (Florida, Oregon, Illinois, California, Washington State, Vermont, and Idaho) campaigning for state-owned banks, including three Democrats, two Greens, one Republican, and one Independent.

The Independent, Vermont’s Gaelan Brown, says on his website, “Washington, D.C. has lost all moral authority over Vermont.” He adds, "Vermont should explore creating a State-owned bank that would work with private VT-based banks, to insulate VT from Wall Street corruption, and to increase investment capital for VT businesses, modeled after the very successful state-owned Bank of North Dakota."

We need a “public option” in banking to set standards and keep private banks honest.

The Bank of North Dakota, currently the nation’s only state-owned bank, is the model (with variations) for all the other proposals on the table. The Bank of North Dakota acts as a “bankers’ bank,” partnering with other banks in “participation loans," which allow them to compete with larger banks. In a participation loan, the community bank originates the loan and takes responsibility for it, while the participating bank contributes funds and shares in the risk and profits. The Bank of North Dakota also makes low-interest loans to students, farmers and businesses; underwrites municipal bonds; and provides liquidity for more than 100 banks around the state.

Three New Bills Pending for Publicly Owned Banks

Proposals for publicly owned banks in other states have now progressed beyond the campaign talk of political hopefuls to be drafted into several bills.

The Michigan Development Bank

The Michigan bill has gotten the most press. Introduced into the legislature earlier this month, it mirrors Bernero’s state bank idea. According to a press release issued by Michigan Senate Democrats on March 9, the bill’s aim is to “keep Michigan’s money in Michigan” by putting tax dollars into a proposed “Michigan Development Bank." The bank would function like a traditional bank, but would focus on economic development rather than profit. The press release quoted Senator Gretchen Whitmer (D-East Lansing):

Investing in the state’s economy is the greatest way to create jobs, and this proposal will provide small businesses and entrepreneurs the funding they need to invest and grow. Our economy has stagnated due in part to stale thinking in Lansing, and this is just the type of innovative idea we need to create real economic change, using our own money to rebuild the state.

Senate Democratic Leader Mike Prusi (D-Ishpeming) stated:

Michigan’s economy has been suffering, and working families in the state have had difficulty keeping up with credit card bills, college tuition prices and mortgage payments. Establishing the Michigan Development Bank will keep our hard-earned dollars right here in the state to invest in small business, create good-paying jobs to get people back to work, and help protect the middle class.

Also quoted was Senator Hansen Clarke (D-Detroit):

With the current state of our economy, every dollar counts, yet we’re depositing our money in other people’s pockets by investing in big corporate banks without seeing much lending in return. It’s time for the Mitten State to lend itself a helping hand and establish a bank that is willing to invest in our small businesses and offer the financial support necessary to see job growth.

For start-up capital, the Senate Democrats suggested that Michigan could sell voter-approved bonds. With an initial capitalization of $150 million, they estimated the bank could lend up to $1 billion to small businesses, students and farmers, and offer low-interest credit cards to consumers. For deposits, the bank could follow the model of the Bank of North Dakota and use state revenues. So says Gene Taliercio, a Republican candidate for the state Senate, who has also put his weight behind the Michigan Development Bank. In a video clip on the website of the local Oakland Press, he says, “We’re talking about restructuring the whole tax system, in the sense that the way it's set up is that all taxes are going to go into this central bank ... Every dollar that the state of Michigan makes goes into this bank.”

The State Bank of Washington

A similar bill, HB 3162, was introduced to the Washington State Legislature on February 1. The bill has generated so much interest that Steve Kirby, chair of the Financial Institutions and Insurance Committee, has scheduled a special work session on it. According to John Nichols in The Nation, the State Bank of Washington was formally proposed by House finance committee vice chair Bob Hasegawa, a Seattle Democrat. Nichols quotes Hasegawa:

Imagine financing student aid, infrastructure, industry and community development. Imagine providing access to capital for small businesses, or otherwise leveraging our resources instead of having to do it with tax incentives. Imagine keeping our resources local instead of exporting them as profits, never to be seen again—that’s what this bank could do.

Leveraging, rather than taxing, is how private banks have been creating “credit” for centuries. States could do the same thing, cutting the middlemen out of the equation, saving significant sums in interest and fees and generating revenue for the state.

A nonpartisan analysis of the Washington bill prepared for the state legislature noted that the bank would be the depository for all state funds and the funds of state institutions, and that these deposits would be guaranteed by the state. The bank would be run by a board of 11 members and would be chaired by the State Treasurer. It would have the same rules and privileges as a private bank chartered in the state. Since current law prohibits the state from lending credit and investing in private firms, voters would have to approve the state Constitution to get the bank off the ground.

The Community Bank of Illinois

A third bill, introduced by Illinois Representative Mary Flowers, is on its way through the legislative process in Illinois. According to the Illinois General Assembly website, the Community Bank of Illinois Act would establish a state bank with the express purpose of boosting agriculture, commerce, and industry. State funds and money held by penal, educational, and industrial institutions owned by the state would be deposited in the bank and would serve as reserves for making loans. The bank could also serve as a clearinghouse for other banks, including handling domestic and foreign exchange; and it could buy property under eminent domain. All deposits would be guaranteed with the assets of the state. The Bank would be managed and controlled by the Department of Financial and Professional Regulation, with input from an advisory board representing private banking and public interests.

An amendment to the initial bill would enable the Community Bank of Illinois to make loans directly to the state’s General Revenue Fund, helping the state cope with its current budget challenges.

A Massachusetts-owned Bank

On March 12, the Associated Press reported that a jobs bill sponsored by Massachusetts Senate President Therese Murray also includes a call to study a Massachusetts-owned bank. She told a business group that a state-owned bank has worked in North Dakota, helping to insulate that state from the worst of the recession while also keeping its foreclosure rate down; similarly, a state-owned bank could spur job creation and free up lending to Massachusetts businesses.

Grandfather of the Concept: The Bank of North Dakota

All of these proposals take their inspiration from the Bank of North Dakota, which was founded in 1919 to resolve a credit crisis like that facing other states today. Last year, North Dakota had the largest budget surplus it had ever had. It was the only state that was actually adding jobs when others were losing them. In March 2009, when 46 of 50 states were in fiscal crisis, the Council of State Governments noted that North Dakota was in the enviable position of discussing tax cuts and looking for ways to spend its surplus.

With the deepening crisis, according to National Public Radio, by January 2010 only two states could still meet their budgets—North Dakota and Montana. On February 8, however, the Montana paper the Missoulian reported that the Montana State Legislature’s chief revenue forecaster foresees a budget deficit by mid-2011, leaving North Dakota the only state still boasting a surplus.

North Dakota’s riches have been attributed to oil, but many states with oil are floundering. The sole truly distinguishing feature of North Dakota seems to be that it has managed to avoid the Wall Street credit freeze by owning and operating its own bank. According to the North Dakota Department of Commerce, the BND turned a profit in 2009 of $58.1 million; this money goes into the state’s General Fund. North Dakota’s economy is ten times smaller than Michigan’s, suggesting that Michigan could generate $500 million per year in this way; Washington State and Illinois present similarly inviting possibilities.

That defuses the objection raised in a March 15 editorial in The Detroit News, arguing that Michigan can ill afford the $150 million capital investment to start a bank. If operated like the BND, the Michigan Development Bank could soon be a net generator of state revenues. There are other possibilities, besides a bond issue, for providing the capital to start a bank, but that subject will be reserved for another article.

The BND’s 90-year track record of prudent and profitable lending defuses another objection to state-owned banks: that a public agency cannot be trusted to act responsibly in managing public funds. The Detroit News' editorial concluded that Michigan should “leave banking to the bankers,” but it is precisely because the bankers have destroyed the economy with their reckless lending practices that the public needs to step in. We need a “public option” in banking to set standards and keep private banks honest.

The True Potential of Publicly-owned Banks

North Dakota broke new ground nearly a century ago, but the true potential of publicly owned banks remains to be explored. Nearly all of our money today is created by banks when they extend loans. (See the Chicago Federal Reserve’s “Modern Money Mechanics," which begins, “The actual process of money creation takes place primarily in banks.”) We the people have given away our sovereign money-creating power to private, for-profit lending institutions, which have used it to siphon wealth from the productive economy. If we were to take that power back, we could generate the credit we need to underwrite a whole cornucopia of projects that we don’t even consider because we think we lack the “money.” We have the labor and we have the materials; we just lack the “liquidity” necessary to put them together to create products and services.

Money today is just a ticket, a receipt for work performed and goods delivered. We can fund the work we need done by creating our own credit. The real promise of publicly-owned banks is not that they can bail out subprime borrowers but that they can jumpstart the economy by creating real wealth. They can provide the liquidity to put labor and materials together, allowing the economy to build and grow. Our private, profit-driven banking sector has been bleeding wealth from the rest of the economy. Public-interest banks can transfuse the economy with the credit it needs to flourish and be productive once again.

Visit Ellen Brown's website, The Web of Debt.

Goldman Accused of Rigging "Robin Hood Tax" Vote

Mary Bottari — Fri, 12 Feb 2010 15:13:56 -0500

It's really unbelievable. The way that Goldman Sachs keeps sticking its foot in it is simply unbelievable. Let's not review their gross profits and bonuses or their many failed PR schemes to gloss over unseemly profits (a practice we have dubbed "greedwashing"). Let's simply recap this week's news.

On Sunday, the New York Times detailed in a front-page expose how Goldman may have hastened the demise of AIG (and perhaps the global economy), by betting that the housing market would collapse and jacking up its insurance for mortgage securities with AIG to extract more and more money from the firm as the housing market went south.

On Tuesday, Bankster reported that the respected German magazine Der Spiegel revealed that Goldman did a billion dollar deal with Greece in 2002, which helped that nation hide its staggering debt for years. Now Greece is tottering on the brink of default, a scenario that could lead to another global meltdown, and Goldman's role is coming under scrutiny. (Unlike the rest of the world, Goldman is probably hedged against a Greek collapse.)

Now the trenchant traders at Goldman have picked a new target. Not satisfied with bringing the global economy to the brink, they now appear to be devoting time and energy to mini, cyber attacks on bank reform campaigners.

Little Lloyd Goes After Robin Hood

On Wednesday, British activists launched a major campaign to push Gordon Brown's government into adopting a "Robin Hood Tax" on financial transactions. "By taking an average of 0.05% from speculative banking transactions, hundreds of billions of pounds would be raised every year," their website claims.

The campaigners unveiled an amazing ad featuring British actor Bill Nighy (Love Actually, Valkyrie, Pirates of the Caribbean) as a deliciously smarmy banker. Nighy also took to the airwaves on the BBC's biggest morning shows arguing that a tiny transaction tax would be "small change for the bankers, but big change for the world."

The Robin Hood Tax campaign website is loaded with lots of clever downloads and posters and attracted visitors by asking them to vote for or against the transaction tax. On the first day of the campaign launch, the tech-heads running the site noticed that they were being spammed with 4,600 "no" votes in a short period of time. They posted a message on the site saying "naughty naughty" letting the spammer know that he was being "watched from the trees." Within 24 hours they say they traced the spamming to two computers, one allegedly registered to Goldman Sachs.

It’s Not Just A Fairy Tale

Goldman has reason to be worried. On Thursday, the Financial Times front page proclaimed that a global deal on a financial transaction tax was in the offing and could be agreed by the G-20 countries at their next meeting in June.

Goldman has a lot to lose if such a tax becomes a reality. Goldman's computers may buy or sell shares as many as 1,000 times a second. It is these high-volume, high-speed trades that would take the biggest hit. Average investors, who hold stock for the long term, would hardly notice. A tax of 0.20 percent, as has been proposed in the U.S. Congress, could raise $100 billion per year. That is real money, money that could be used to put Americans back to work, rebuild our ravaged economy and meet other critical needs.

By today, the Robin Hood Tax "yes" vote had a substantial lead on the "no" camp, with 28,017 votes compared with 3,300. Let's hope the vote keeps on mounting and the campaign spreads around the globe. There is nothing that would put the brakes on the reckless casino-style gambling on Wall Street more than this tiny tax on the likes of Little Lloyd Blankfein.

Please visit the Bankster website.

CAMPAIGN FOR AMERICA’S FUTURE HAILS CREDIT CARD LEGISLATION AS A STEP IN THE RIGHT DIRECTION

Isaiah J. Poole — Tue, 19 May 2009 15:03:49 -0400

WASHINGTON – The Campaign for America’s Future today applauded the Senate for overwhelmingly passing H.R. 627, the Credit Cardholders’ Bill of Rights Act of 2009 by a vote of 90-5. Sponsored by Senator Chris Dodd (D – Conn.), this bill would amend the Consumer Credit Protection Act to ban abusive credit practices, improve consumer discloses, and require more transparent practices in the credit card industry. The companion bill, H.R. 627, sponsored by Rep. Carolyn Maloney (D – New York), was passed by the House on April 30 by a vote of 357-70.

STATEMENT OF ROBERT BOROSAGE, CO-DIRECTOR, CAMPAIGN FOR AMERICA’S FUTURE

The Credit Cardholders’ Bill of Rights Act of 2009 will restore some much-needed fairness to a credit card industry that is largely out of control. It prevents credit card companies from arbitrarily hiking interest rates, applying newly-increased interest rates to prior existing balances; imposing major penalties for minor transgressions; imposing late fees even when it is proven that payment was mailed on time; imposing finance charges on balances repaid on time; and marketing and issuing cards to young people who are clearly unable to repay debt.

For far too long, credit card companies have exploited their own customers with misleading information and usurious interest rates. Usury laws are designed to set fair and reasonable limits to the interest rates credit cards can charge customers. But beginning in the 1980s, conservatives began chipping away at these laws, and widespread deregulation has left customers vulnerable to unscrupulous credit card companies.

But while this measure is a strong first step toward restoring basic fairness and transparency in credit card industry practices, we urge Congress to continue this work. For example, this legislation fails to place a cap on interest rates, which is vital to protecting consumers. In this unstable economy, we urge Congress to enact additional legislation aimed at protecting the average American from unscrupulous lenders.

Revenge Of The Plastic

Isaiah J. Poole — Tue, 19 May 2009 10:42:59 -0400

A bill that will clamp down on some of the most egregious practices of credit card companies is rushing toward final passage in the Senate, and the industry—and its conservative buddies—are gearing up for retaliation.

For example, one conservative group has already said that if this bill is signed into law, more black people will be denied credit cards.

Think I'm exaggerating? Here's part of a commentary published in Politico last week from the Institute for Liberty:

A cap or limit on fees will cause credit card companies to limit their exposure particularly to minority and inner-city areas, since those with low incomes are at higher risk for default. ... Particularly troubling is that even minorities, women and working-class families with good records of paying their debts will see credit access dry up.

The New York Times today front-paged the story of how the credit card industry, if barred from engaging in predatory practices on borrowers who are literally a day late or a dollar short, will extract their pound of flesh from their best, on-time-paying customers. It appears that the industry, as the bill moves from the Senate into a conference with the House, is hoping that some Rick Santelli wannabe will whip the populace into a tea-bag-throwing frenzy about how people who are supposedly "carrying their own water" are having to pay for those who allegedly don't.

But not far under the radar, conservatives are giving the industry cover to engage in redlining, the practice of drawing figurative and sometimes literal lines around entire communities of color.

Not that credit discrimination hasn't been a basic fact of life in the past two decades. A 2008 study issued by the Federal Reserve Bank of Boston found "qualitatively large differences in the amount of credit offered to similarly qualified applicants living in Black versus White areas." The author, Ethan Cohen-Cole, explained the study in an interview for an article that appears on CreditCards.com.

"I had data that is in principle the same data that the credit card issuers have. I wanted to evaluate the same data they use to make their credit card decisions," Cohen-Cole says. "When you fill out a credit card application, you do not fill out your race. However, they do know where you live and they do know the racial makeup of where you live. By using that information, you can determine if the racial composition of the neighborhood is one of the criteria they are using."

He adds: "The fact that credit is being differentiated by location is well known now. The question is whether or not they are also differentiating by racial composition of those neighborhoods ... the answer is yes."

Studies have already documented the pattern of African Americans paying higher rates on mortgages and auto loans that whites with the same income and credit standing.

There is a little-discussed provision in the credit card bill in the Senate that calls for a board to study how the credit card market functions in the months following the bill's passage. The scope of the investigation would include "the cost and availability of credit, particularly with respect to non-prime borrowers" and the use of "risk-based pricing" in determining who gets credit and what it costs.

Given the threats that the industry and its allies on the right have been has been making, the commission needs to give special attention to safeguarding consumer rights and equitable treatment. It's pretty clear that the industry does not intend to play fair, even with the wrist-slap it is about to receive from Congress.

The Case for Patience

Ryan Avent — Thu, 14 May 2009 14:55:52 -0400

In response to Dean’s response, let me begin by clarifying my position on a timeline for regulatory reform.

I don’t believe we need to wait for a year or more before beginning the effort to reshape the financial system—in fact, I think we could begin right now. I would like to see the White House and the Congress working toward a comprehensive regulatory overhaul this very minute, which might be put up for a vote within a matter of months. What I don’t think we should do is rush the reform process through as an explicit response to this crisis. What we’d like the financial system to look like a year or two down the road should not be a major consideration in determining how to achieve financial stability now. The priority should be addressing the immediate crisis in as effective a manner as is possible given constraints.

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Having said that, I think it’s most helpful to divide Dean’s proposals into two categories. The first is his proposal for immediate resolution of the problem of potentially insolvent banks. He says:

That is real simple. The shareholders get wiped out and the bondholders likely get wiped out too. That's the way capitalism is supposed to work.

This is the kind of message that should appeal to angry voters—take over the banks and wipeout the fat cats what created the mess. I don’t believe that following this path would have the effect Dean desires, however. Restructuring one or a handful of banks would leave most of the difficult work to be done—it wouldn’t obviate the need to regulate leverage and behavior. Even if nationalization could be accomplished in the cheapest manner possible—by wiping out bondholders—it’s likely that the process of cleaning up a Bank of America or a Citigroup would be quite expensive (particularly if depositors got nervous and began withdrawing funds). This expense would mean that new appropriations for the banks would be necessary, which would no doubt blunt the public’s satisfaction at having a big bank go down.

Further, and as Dean knows, there is some risk (and potentially a significant risk) that nationalization would touch off a new round of financial instability. This wouldn’t only prove damaging to the administration’s efforts to reform the financial stability; it would also threaten the Obama presidency and the whole of the progressive agenda.

Dean’s other regulatory proposals are sound in principle, and I hope they are incorporated in whole or in part into legislation. But here, too, I think it’s better to take one’s time and produce the best legislation possible rather than rush ahead to take advantage of public sentiment. For one thing, I doubt that anger at bankers will wane in the near future, but for another, I’m skeptical that this anger can be channeled into an effective regulatory framework. “Let the banks fail,” is a rallying cry. Even, “Reduce financial compensation,” could resonate with the public. “Alter the procedures by which Fed presidents are chosen,” is destined to cause eyes to glaze over.

Just have a look at the recent fate of mortgage cramdown legislation. This should have been something the public could rally behind, and it certainly should have been an issue on which standing with the banks proved politically poisonous. And yet stand with the banks legislators did, enough of them to kill the measure. Anger works for bringing down people and institutions. At fine-tuning rules it is of limited utility.

More Evidence For Reining In Credit-Card Companies

Isaiah J. Poole — Thu, 14 May 2009 11:19:20 -0400

The Senate is expected to vote either later today or Friday on a credit-card reform bill. As debate continues on that bill—and as President Obama ratchets up the pressure with a town hall meeting on the subject—a recent report by the Center for Responsible Lending shows just why tough legislation is needed.

The center did what it called a "quick sampling" of actions taken by credit card companies after the Federal Reserve Board announced a series of rules that will take effect in late 2010 designed to curb some of the companies' most onerous practices—rules that Sen. Christopher Dodd, D-Conn., who is leading the reform effort in the Senate, has maintained don't go far enough and don't go into effect quickly enough.

What the center found is that the major card isuers—Citigroup, Bank of America, JP Morgan Chase, Capital One, HSBC, Discover, American Express, and Wells Fargo—"all continue to apply a customer's monthly payments to the least costly balance first, leaving the most expensive to continue to grow. None have changed their policy of imposing interest rate hikes for any reason, any time. Additionally, there is no evidence that any of these companies has expanded the period of time between when monthly bills are sent and when late fees apply."

What the card issuers have done is modest at best. For example, some issuers have ended the infuriating practice of considering a payment "late" because the payment was processed in the afternoon of the due date instead of the morning. In some cases, consumers are being given more advance warning of a rate hike.

But as for the rate hikes themselves, there's no evidence of banks taking steps on their own to bring these under control. The center estimates that 10 million card holders have received rate hikes in the past few months. That does not count rate hikes and fee increases on borrowers who have made late payments. It's not clear what the average rate hike is on borrowers who are paying their bills on time, but the report says "we know that many cardholders have seen increases of 10 percentage points or more over their existing rate."

The bill that is moving through the Senate, James Ridgeway notes in a commentary today on Mother Jones, will do some good for consumers. For example, companies will be barred from raising interest rates on a delinquent user's existing balance until the delinquency exceeds 60 days. Card users who face a penalty rate can have their rate reconsidered for lowering to their original rate after six months of on-time payments. The bill ends the practice of "universal default," in which companies raise credit card rates on accounts paid on time because another account was not. Disclosure would also be better.

But the Senate on Wednesday flatly rejected measures that would cap interest rates, even though, as Ridgeway points out, such a measure has broad consumer support and is hardly radical.

"Credit unions have been under [such a] law for 30 years which says the maximum rate is 15 percent except under unusual circumstances, in which case it goes up by 3 percent," said Sen. Bernie Sanders (D-Vt.), one of the measure's cosponsors. "We want to do for private banks what we have been doing with credit unions." Laws against usury were common in many states until they were essentially abolished by a banking-law loophole in the early 1980s. "The problem with instituting a new usury law is politics," Warren said. "The credit industry hires a lot more lobbyists than the consumer advocacy groups, and the creditors have been almost uniformly opposed to any usury laws."

Odds are that the credit-card bill will pass the Senate this week by a comfortable margin. But that passage will not repudiate the statement by Sen. Richard Durbin, D-Ill., that bankers "frankly own this place." It at best says that they have been knocked off-stride by the populist reaction to their greedy overreach.